An Arizona Utility Is Betting Big on Energy Storage

The shift underscores declining storage costs, but questions remain on whether the move will bring down emissions

An Arizona utility said last week it plans to install more energy storage in the next six years than had been built in all of the United States prior to 2018.

But whether the new batteries in the desert will lead to a reduction in greenhouse gas emissions is an open question.

The announcement by Arizona Public Service Co. represents a breakthrough moment for the storage industry. While utility-scale storage announcements have been building in size and frequency, none of them matches the 850 megawatts proposed by the Phoenix-based company.

It also heralds a shift for APS. Last year, state regulators rejected the utility’s long-term power plans, saying they called for too much new natural gas.

Company officials now say batteries are the cheapest way to meet peak demand traditionally served by natural gas peaking units (Energywire, Feb. 25).

“I think it’s a game changer for storage because it is a utility-generated proposal,” said Mike O’Boyle, director of electricity policy at Energy Innovation, a clean energy think tank. “I think utilities have been generally slow to embrace these technologies. To have a big utility like APS say that storage is the most cost-effective option is remarkable given that the default option for APS and others have been natural-gas-fired generation.”

Energy storage has long been seen as a necessary foundation for a grid powered by increasing amounts of wind and solar. Without the ability to store their power, renewables are constrained by intermittent production.

Recent years have brought that storage dream closer to reality. Where the United States boasted some 700 MW of installed storage capacity at the end of 2017, it added 470 MW in 2018 alone, according to industry figures.

Falling costs have fueled the rapid increase in storage deployment. Kelly Speakes-Backman, CEO of the Energy Storage Association, estimates utility-scale storage costs have fallen by 80 percent in the last eight years. She expects the industry to post annual cost reductions of 10 to 15 percent in the coming years.

She called APS’s announcement “pretty exciting,” saying it is indicative of utilities’ willingness to consider storage.

“Arizona doesn’t have a [storage] target in law yet, and yet they went forward and did this anyway,” Speakes-Backman said.

The Southwest is particularly suited to large battery projects, said Yayoi Sekine, an analyst who tracks the storage industry at Bloomberg New Energy Finance. A glut of solar-generated power makes it cheap to charge batteries during the daytime, when wholesale electric prices regularly dip into negative territory.

Peak power demand, meanwhile, generally occurs in the evenings and lasts for several hours. Batteries with an ability to dispense power in four-hour increments are well-placed to serve that demand.

“The Southwest is definitely a pioneer there,” Sekine said, noting the region’s strong solar resource helps make batteries economical at current prices.

The dynamic is reflected in recent utility deals. Last year, Nevada regulators approved an NV Energy plan to build three solar farms equipped with a combined 100 MW of storage capacity. In Arizona, Tucson Electric Power has a 100-MW solar project paired with 30 MW of storage. And Xcel Energy Inc. in Colorado accepted bids last year to partner wind and solar with storage projects.

The trend has important climate implications. If batteries are charged by zero-emitting resources, they can reduce emissions. But if they are charged by traditional fossil fuel units, they can prompt emissions to rise.

“In the Southwest, if the overall objective is to get a cleaner yet cheaper grid, you’re starting to see that happen,” said Ravi Manghani, director of energy storage at Wood Mackenzie Power & Renewables.

It remains to be seen if APS’s projects will lead to a reduction of emissions.

Like most utilities nationally, the company is shifting away from coal. APS is one of the four utilities with a stake in the Navajo Generating Station, a massive coal-fired power plant in northern Arizona slated to close at the end of the year (Climatewire, Feb. 7). And it embarked on a groundbreaking project to pair a 65-MW battery with a 50-MW solar farm last year.

The company’s storage proposals come amid pressure from Arizona regulators. The Arizona Corporation Commission, which oversees the state’s electric sector, imposed a temporary moratorium on new natural gas capacity last year (Climatewire, March 19, 2018). Commissioners are also weighing proposals to increase renewable generation.

And they recently reopened an investigation into APS’s rates after a consumer complained they were higher than initially projected.

“It’s an obvious change in direction from what they were proposing,” said Robert Burns, the commission’s chairman. “When I attend these conferences around the country and I hear the things in the pipeline, storage prices going down, I’m sure they’re hearing those same messages.”

In its announcement last week, the company said it will buy 100 MW of new solar by 2025, along with a seven-year contract to purchase 463 MW of natural-gas-generated electricity.

It did not, however, call for any new wind or demand response proposals, which are badly needed to better balance the company’s generating portfolio, said Amanda Ormond, a consultant at the Western Grid Group and former director of the Arizona Energy Office.

“Utilities are starting to figure out that a complement of resources is cheaper than building or buying gas. APS still has a ways to go to get there,” Ormond said. “They bought four times more fossil than they did clean.”

O’Boyle of Energy Innovation echoed that concern.

Arizona’s electricity generation and consumption profile mean the storage installations may drive emission reductions. Yet the company’s storage ambitions outstrip its plans for new renewables, which are relatively modest given the strength of the Southwest’s solar resources, he said.

“To see this procurement come out without additional generation, it would be proper to point out that they’re embracing storage, but it’s not a full-throated embrace,” he said.

Anne DeGraw, an APS spokeswoman, noted the utility now boasts 1.4 gigawatts of solar capacity, making it one of the largest solar producers in America. The utility’s decision to contract for seven years of natural gas power was a conscious choice. APS needs the reliability natural gas can offer today.

But the company did not want to lock itself into a typical 20-year contract because it wanted to leave room to evaluate renewable and storage technologies in the near future, she said.

“We consider it the bridge fuel,” DeGraw said. “We can reassess in seven years. The hope is things have changed to a point where there isn’t as much reliance on gas.”

Reprinted from Climatewire with permission from E&E News. E&E provides daily coverage of essential energy and environmental news at www.eenews.net.

ABOUT THE AUTHOR(S)
Benjamin Storrow

Source: scientificamerican